Forex news from the European trading session - 22 October 2018
Headlines:
- DUP said to be back amendment tabled by Tory euroskeptics to make EU's Irish backstop illegal
- Italy's Conte: If EU pre-announces budget rejection before receiving it, this is a prejudice
- UK PM spokesman says that extension of Brexit transition is just an idea
- Italy's Tria: Government is aware budget plan not in line with EU demands
- Bundesbank says German growth may have stalled in Q3
- Iran says that Saudi and Russia have no spare capacity to pump more oil to replace Iran's supplies
- SNB total sight deposits w.e. 19 October CHF 577.9 bn vs CHF 577.6 bn prior
- Switzerland September M3 money supply +2.3% vs +2.5% y/y prior
- Italian bonds lend the euro a helping hand, but can the relief last?
- Theresa May's domestic headache may prove too much
- Ireland's Coveney: Extension of Brexit transition period cannot be an alternative to Irish backstop
- Chinese equities rebound no game changer just yet
Markets:
- CAD leads, GBP lags on the day
- European equities trade higher, but off the highs
- US 10-year yields up 0.2 bps at 3.194%
- Gold down 0.32% to $1,223.10
- WTI up 0.03% to $69.14
- Bitcoin up 0.23% to $6,399
The session started with a risk on mood as Chinese equities surged for a second straight trading day as local authorities continued to talk up support for the economy and domestic companies. Chinese stock indices pulled off a more than 7% gain over the course of two days as a result and that helped to keep risk assets bid on the day.
US equity futures traded higher into the start of the session and that helped USD/JPY move towards 112.75 from 112.60. As the session progressed, the focus shifted to Italy with domestic bonds starting the day strongly as yields tumbled following Moody's stable outlook on the nation's credit last Friday.
As a result, EUR/USD jumped up to a high of 1.1550 from 1.1510 and that helped to lift the pound inadvertently with cable moving from 1.3065 to 1.3090. The improved sentiment in Italian bonds led to healthy gains for European stocks to begin the session and that weighed a little on the swissie.
However, the mood was short-lived as Italian bonds then paring gains as worries start to resurface on the budget being rejected by the European Commission. At the same time, the dollar captured some bids across the board and moved higher as well. EUR/USD then fell to a low of 1.1493 and the pair now trades around the 1.1500 handle now.
Meanwhile, the pound was brought lower on worries regarding Theresa May's position as prime minister with a vote of no confidence reported to be in the works. Cable fell initially to 1.3060 but then slowly made its way lower to trade at session lows currently of around 1.3010 ahead of US trading.
As the dollar stayed bid, USD/JPY made its way to a high of 112.88 where it trades just under currently. AUD/USD saw a much calmer price action with the pair trading flat for the most part around 0.7120 to begin the session but moved a little lower to trade near the 0.7100 handle as the dollar picked up bids.
It was a similar story for NZD/USD as well with the pair starting off around 0.6595 levels before tracking to a low of 0.6575 where it trades just above currently.
The only currency to defy the dollar move so far today is the Canadian dollar with the loonie recovering from Friday's poor set of data as traders look towards the Bank of Canada rate decision on Wednesday where the central bank is expected to hike rates by 25 bps. USD/CAD started the session around 1.3100 and moved lower to 1.3080 before settling just above it currently.
